Question
Suppose that an investor with a 10-year investment horizon is considering purchasing Bond A, a 15-year 8% semiannual coupon bond selling at par. The investor
Suppose that an investor with a 10-year investment horizon is considering purchasing Bond A, a 15-year 8% semiannual coupon bond selling at par. The investor expects to be able to reinvest the coupon payments at a rate of 7.4% over the first six years and then at a rate of 7.8% over the subsequent four years, and that at the end of the investment horizon, similar 5-year 8% semiannual coupon bonds will be selling to offer a yield of 7% while similar 10-year 8% semiannual coupon bonds will be selling to offer a yield of 7.6%. What is the total return for Bond A?
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